M&A-related financing made up more than 80% of total leveraged loan activity in the second quarter to mid-June.

This is being driven in part by the global M&A boom. All announced acquisitions in Europe and the U.S. combined increased by 81% year over year to June 15, to $1.2 trillion, according to data from S&P Global Market Intelligence (this includes investment-grade companies, and only covers transactions of more than $100 million in size).

There is a longer-term disintermediation trend in Europe, whereby companies are diversifying their capital markets exposure from primarily bank lending.

There has been an increase in loan spreads and CLO liability pricing, as well as a pushback on loan documentation.

Average starting margins for a decent single-B credit have moved 50 bps wider since the end of last year.

The percentage of flexes to have moved pricing wider has risen, from only 20% in January, to 50% in May.

Secondary loan prices have cooled as investors make room for higher priced, more desirable credits in primary, while there is more risk aversion in the leveraged finance markets generally.

Taron Wade heads up LCD’s European Research efforts. Chris Porter is Head of Loan Recovery & CLO Business Development, S&P Global.As ever, please feel free to contact Taron or Chris if you’d like a particular topic discussed in next month’s video.

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